Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: whether amount of foreign non-business income taxes allocated by partnership to a partner and in respect of which the partner claims a deduction under subsection 20(12) will result in a reduction to the partner's adjusted cost base of the partnership interest
Position: No
Reasons: in such circumstances, the deduction under subsection 20(12) is deducted at the partner level and thus does not reduce partners allocation of partnership income - also, no deduction under paragraph 53(2)(c) specified
2004-007593
XXXXXXXXXX T. Harris
(613) 957-2114
January 10, 2005
Dear XXXXXXXXXX:
Re: Adjusted Cost Base of a Partnership Interest
We are writing in response to the letter of May 5, 2004, from XXXXXXXXXX of your office regarding the above-noted subject. Unless otherwise stated, all statutory references herein are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended to the date of this letter.
In her letter XXXXXXXXXX described a situation where a member of a partnership has been allocated a proportionate share of the non-business income tax paid to a foreign government with respect to foreign source income earned by the partnership and allocated to the partners thereof. One of the partners has claimed a deduction under subsection 20(12) in lieu of claiming a foreign tax credit under subsection 126(1) in respect its share of the non-business income tax paid. The question raised is whether the amount deducted by the particular partner under subsection 20(12) will reduce the adjusted cost base of that partner's interest in the partnership as determined under section 53.
The particular situation outlined above appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Where the particular transactions have been completed, any enquiry should be addressed to the relevant tax services office. Although we cannot comment on the specific situation described above, the following general comments may be of assistance.
The amounts to be deducted in determining the adjusted cost base of a taxpayer's interest in a partnership are found in paragraph 53(2)(c) and generally include the partner's share of any partnership losses, investment tax credits and resource deductions from any previous fiscal period after the later of 1971 and the time that the partner acquired the partnership interest.
In our view, for the purposes of subsection 126(1), a partner's non-business income tax, within the meaning of subsection 126(7), paid to a particular foreign country includes the partner's share of any non-business income tax paid to that country through the accounts of the partnership. Consequently, any foreign tax credit under subsection 126(1) or deduction under subsection 20(12) would be claimed by the particular partner.
With respect to this query, we note that paragraph 53(2)(c) does not provide for a deduction in computing the adjusted cost base of a taxpayer's interest in a partnership for the amount of any non-business income tax paid to a foreign country through the accounts of the partnership that was allocated to the particular partner, or for any amount deducted under either subsection 20(12) in computing the taxpayer's income or subsection 126(1) in computing the taxpayer's taxes otherwise payable in respect of such amount. Consequently, it is our opinion that no reduction to the adjusted cost base of the taxpayer's partnership interest would be required for the amount of any such non-business income tax that was allocated to the particular partner, regardless of whether such amount is deducted under subsection 20(12) in computing the taxpayer's income or under subsection 126(1) in computing the taxpayer's taxes otherwise payable.
We trust that these comments will be of assistance. However, as stated in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently is not binding on the Canada Revenue Agency in respect of any particular situation.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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